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North America and Global Economy

CPL-561-781

Regional Trade Report

Canada – South America

Presented to:

Professor K. Matziorinis

Prepared By:

Sergio Valente 260012071

Siragan Makdissian 119112602

February 13, 2003

Table of Contents

Abstract 3

Introduction 4

Historical background 5

The debt crisis 6

ISI (Import Substitution Industrialisation) 6

Country specific coverage 8

Conclusion 25

References 27

Appendix 28

Abstract

International trade is an important form of international business—over $7.4 trillion of goods and services were traded between residents of different countries in the world in 2001. Most of this trade involved the wealthy Quad (Canada, EU, Japan and the United States) countries.

Because of trade’s importance to business and governments worldwide, scholars have offered numerous explanations for its existence. The first theories of international trade developed with the rise of great European nation-states in the sixteenth century. The earliest theories—Adam Smith’s absolute and Ricardo’s comparative advantage—relied on characteristics of countries to explain patterns of exports and imports. Coincident with the rise of the multinational corporation (MNC), post World War II research focused on firm-based explanations for international trade. International investment in the form of portfolio investment and foreign direct investment (FDI) became a major way in which firms participate in international business.

This report looks at trade relations between Canada and South America in terms of trade, investment, and general economic indicators. It gives a historical background and a concise viewpoint as to how the South American continent as a whole became burdened heavily with debt, high inflation, widespread poverty, economic stagnation, and macroeconomic instability.

Introduction

International business today has a new name and face. Globalization has become the buzzword for the past decade both in print media and the news, but it is hardly a trend. The architects of this phenomenon have been the MNCs that have become true global players. They are backed by international organizations such as the International Bank for Reconstruction and Development (IBRD) a.k.a. the World Bank, and its affiliated organizations. At a top political and economic level, globalization is the process of denationalization of markets, politics and legal systems, i.e., the rise of the so-called global economy. The consequences of this political and economic restructuring on local economies, human welfare and environment are the subject of an open debate among international organizations, governmental institutions and the academic world.

Historical Background

Before getting into the particulars of trade and investment relations between Canada and South America (Exhibits 1 & 2), it is of great importance to understand the characteristics and history of the economic development of South America. It is difficult to analyze the status of South America’s economy in the present (Exhibit 3), without looking at some key issues that occurred in the past. For example, the Debt Crisis of the eighties along with ISI (Import Substitution Industrialisation) have greatly effected and shaped today’s economy. Indicators such as inflation and unemployment from the past can provide useful insight for the present and the future.

During the Twentieth Century, the nations of South America shared most economic experiences. The great Depression of the 1930s, for example, caused most nations to shift their policies away from an outward, export orientation toward an inward, targeted industry strategy. This new strategy eventually developed its own theoreticians and came to be known as “Import Substitution Industrialization”. More recently, most nations were borrowers in the 1970s, only to experience severe debt problems in the 1980s. Continuing through the 1990s, the region has embarked on a wide-range set of economic policy reforms, equal in scope to the transformations that began in Central and Eastern Europe with the collapse of communism.

The Debt Crisis of the 1980s

In the 1970s, few countries had abstained from the borrowing binge, when banks in the United States, Europe, and Japan offered easy access to the funds they had accumulated from deposits by rich oil-producing countries. There was no memory in the banking community of the Latin American debt crisis of the 1930s, when many countries defaulted on their debts.

The motivation to increase the borrowings varied from country to country. Venezuela borrowed because they had valuable oil in the ground that future generations could use to pay the debt; oil importers such as Brazil and Chile borrowed to avoid cutting government expenditures; and some countries such as Peru, borrowed because they had chronic trade deficits that they had to finance with capital inflows.

There is no indication that the IMF or the World Bank, or the world banking community realized that a crisis was brewing. When it broke in August of 1982, it caught everyone off guard. Lending to Latin America ceased, and the ‘Lost Decade’ began.

ISI (Import Substitution Industrialisation)

For nearly forty years, ISI was important for foreign investors who financed most of the ventures. Essentially, it involved high production economic strategy for South America’s economy. In an attempt to have a positive trade balance, the Latin American plan was to raise capital at the expense of in specialized goods, produced by South America. This included: agricultural commodities such as tropical fruits, cotton, coffee, and grains as well as minerals like petroleum and copper, to be exported to developed countries for consumption, and to earn foreign revenue.

In areas where the export sector was domestically owned, the problem would lie in the fact that only a small number of the population would reap the benefits and would add greatly to the inequality and wealth that is usually associated with South America. However, the goal of ISI was to direct developing countries in producing and focusing on those industries that produce substitutes for imported goods. Their main goal was to reduce the need for foreign exchange that was used to buy goods that could be made at home.

The main problems associated with ISI are the result of government misallocation of resources because of their involvement in production decisions, as well as an overvaluation of exchange rates that would cause uncertainty in the real value of money. Other problems included a worsening of income inequality which—as discussed before—is a serious issue in South America, as well an over biased policy in favor of areas that were more urbanized. Many feared that market failure was inevitable due to ISI policies.

Country Specific Coverage

ARGENTINA

Economic Data (2001)

GDP: $272.6 billion

Real GDP Growth Rate: 3.3%

GDP Per Capita: $US 6,391

Inflation Rate: -0.9%

Unemployment Rate: 18.5%

Total External Debt: $150.3 billion

Canadian Foreign Direct Investment: C$5.5 billion

|Trade with Canada |1997 |1998 |1999 |2000 |2001 |

|(C$Million) | | | | | |

|EXP. to Argentina* |409.0 |342 |211.4 |244.2 |132.1 |

|IMP. from Argentina* |231.4 |259 |303.9 |367.1 |350.0 |

|2-Way Trade |640.5 |601 |514.3 |611.3 |482.1 |

|Balance |177.6 |83.3 |-92.5 |-122.1 |-217.9 |

*(Exhibit 8)

Major Canadian Imports from Argentina:

Ores, fruit and nuts, iron and steel products, leather products, agri-food products.

Major Canadian Exports to Argentina: Machinery, mechanical and electrical appliances, plastics, newsprint, chemicals, optical equipment, vegetables.

Canada-Argentina Relations

Political

Bilateral relations continually improved throughout the 1990s and have taken on an increasingly broad and sophisticated character. Canadian investment in Argentina, complemented by close cooperation and a congruence of views on hemispheric and global issues, was a key factor driving the relationship forward. The Team Canada mission in January 1998 underlined the growing priority Canada accords to Argentina, both commercially and politically, in efforts to consolidate Canada's ever-expanding interest in Argentina as a key hemispheric and multilateral partner.

The Canada-Argentina relationship will continue to grow and mature in the years ahead, despite Argentina's present difficulties. Promising areas of bilateral cooperation include academic relations, legal matters and education, parliamentary affairs, defense and peacekeeping, science and technology, and fisheries and natural resources.

Commercial

The commercial relationship also continues to mature steadily, although during the last year there has been a dramatic decrease in activity due to the worsening economic situation in Argentina. Canadian investment, notably in the oil and gas, mining and energy sectors, reached $3.6 billion in 2000, making Canada one of the most important foreign investors in Argentina.

During the last several years, several memorandums of understanding have been signed and cooperative efforts have covered a wide range of sectors, most recently agriculture, environment and science and technology. Specifically, in October 2000, Canada and Argentina signed a Bilateral Reciprocity Agreement on Fixed Satellite Services, thereby opening the Argentine market to Canadian satellite services.

Canada-Argentina Trade and Investment Relations

Bilateral Trade

The Canada-Argentina commercial relationship grew steadily through the 1990s, but the last year has witnessed a dramatic drop in activity due to the deteriorating economic situation in Argentina, which has entered its fourth year of continued economic recession. In 2001, bilateral trade totaled $482.1 million, down from $611.4 million in 2000. Canadian exports shrank to $132.1 million (down 45.9% from 2000), while imports leveled off at $350.0 million (down 4.7% from 2000).

According to Statistics Canada, Argentina registered a $217.9 million trade surplus with Canada in 2001. Because of trans-shipments through the United States, Canadian statistics significantly understate exports to South America. For the same reason, South American statistics routinely understate exports to Canada. Approximately 45% of current Argentine exports to Canada are agri-food products; a further 20% are copper ores and concentrates; almost 20% are steel mill products; and the balance includes leather products, fish and seafood, machinery, metals, automotive parts, wood products, plastics, minerals and chemicals.

Current Canadian exports to Argentina include electrical machinery (e.g. telecommunications equipment), machinery, newsprint, plastics, optical and medical instruments, dried vegetables (lentils including seeds), fertilizers, synthetic fibers, and cosmetics. In addition, during the last several years, there have been discussions on cooperation between Canada and Argentina on common interests in the areas of nuclear energy, geo-science, mining, fisheries, space, agriculture, environment, and information and communications technologies.

Investment

Major Canadian investments are in oil and gas, power, mining, agro-industry, banking and telecommunications. While additional investment opportunities exist for these sectors, the extent to which they can be explored is dependent on Argentina's recovery from its ongoing economic crisis.

A Canada-Argentina Foreign Investment Protection Agreement was signed in 1991. It follows the Organization for Economic Cooperation and Development model, which has minimal obligations and few transparent exceptions. Canada also has a Double Taxation Agreement with Argentina and a Trade and Investment Cooperation Arrangement (TICA) with MERCOSUR. The TICA establishes a framework for discussion designed to enhance trade and investment cooperation and encourage collaboration on the FTAA and WTO work programs.

BRAZIL

Economic Data (2001)

GDP: $502.5 billion

GDP Growth Rate: 1.5%

GDP per Capita: $3,523

Inflation Rate: 6.8%

Unemployment Rate: 6.2%

Total External Debt: $235.7

Canadian Direct For Inv: C$ 5.564 billion

|Trade with Canada (C$ millions) |1997 |1998 |1999 |2000 |2001 |

|EXP. to Brazil* |1674.9 |1381.8 |1042.8 |1051.9 |914.8 |

|IMP. from Brazil* |1314.1 |1377.0 |1374.6 |1501.7 |1531.0 |

|Two Way Trade |2989.0 |2758.8 |2417.4 |2553.6 |2445.8 |

|Balance |360.8 |4.8 |-332.2 |-449.8 |-616.2 |

*(Exhibit 9)

Major Canadian Imports from Brazil:

Vehicles, iron and steel, electrical machinery, sugars, preserved food, machinery, wood pulp.

Major Canadian Exports to Brazil:

Newsprint, fertilizers, machinery, mineral fuels, electrical machinery; sulphur, optical equipment.

Canada-Brazil Relations

Political

The bilateral relationship has expanded and diversified significantly over the last several years, despite some ongoing trade disputes, demonstrating Canada's interest in having Brazil as a key partner in South America. In regional and global terms, both countries recognize the other as a valued partner with whom it often shares similar objectives. Formal bilateral consultations are being held regularly on political, international and defense security issues.

Commercial

Brazil is traditionally Canada's largest trading partner in South America. Canadian exports to Brazil experienced an unparalleled seven years of exponential growth, starting in 1991 when Brazil opened its market to imports. During the seven-year period exports more than tripled, reaching a peak of C$1.68 billion in 1997. Successive economic crises in Southeast Asia and Russia had a negative impact on emerging markets.

Statistics Canada indicated official figures were C$5.56 billion in 2001. According to informal estimates, the current value of Canadian investment in Brazil is approximately C$7 billion. Brazil is one of the primary destinations for Canadian foreign direct investment in the hemisphere. Brazil was the world's third largest recipient of foreign direct investment in 1999, behind China and the United States.

Canada-Brazil trade and investment relations

Bilateral Trade

With a population of 170 million and a gross domestic product estimated at US$492 billion in the year 2001, Brazil is, by far, the most powerful economy and Canada's largest trading partner in South America. Trade between Brazil and Canada increased significantly during the 1990s. From C$1.7 billion in 1989, two-way trade peaked at C$3.0 billion in 1997 and totaled C$2.8 billion in 1998. However, reflecting significant currency devaluation in Brazil in January 1999, trade retracted to C$2.4 billion (exports of $1.04 billion and imports of $1.36 billion) in 1999. In 2000, two-way trade was C$2.5 billion, showing a modest increase (6%) over 1999. In 2001, two-way trade totaled C$2.4 billion (Canadian exports of C$914.5 million and imports of C$1.5 billion), representing a decrease of 4.3% from 2000.

Although there had been cautious optimism that Brazil would enjoy strong economic growth in 2001, the financial crisis in Argentina, a de facto devaluation of the currency (the real) by 20% in 2001 and an energy crisis in Brazil led to a more conservative estimate for economic growth and trade prospects. Despite these setbacks, Canada continues to export almost three times as much to Brazil as it does to Chile and currently exports seven times as much to Brazil as to Argentina.

Until recently, commodities dominated Canadian exports to Brazil. While commodities are still significant, Canada now exports larger quantities of value-added and manufactured goods. The Brazilian government's trade liberalization efforts have increased export opportunities for these products, and Canadian suppliers have carved out a significant market presence in mobile cellular systems, telecommunications and informatics equipment and services, environmental equipment and services, aircraft engines, leisure watercraft, automotive industries, advanced manufacturing equipment, value-added foods, remote sensing and geographic information systems (GIS). From Brazil, Canadians are importing a wide range of products, including coffee, fruit juices, automotive parts and accessories, metals and minerals, shoes and chemicals.

Investment

Total foreign direct investment (FDI) in Brazil reached US$30 billion in 2000, making Brazil the world's third largest recipient of FDI after the United States and China. In 2001, Canadian official direct investment in Brazil totaled $5.5 billion, making Brazil Canada's 14th destination for foreign investment (unofficial estimates put this at approximately $7 billion). The largest recipient of Canadian direct investment is the telecommunications sector. The Brazilian government continues to move forward with its privatization program in various sectors, including petrochemicals, transportation and utilities. Canada and Brazil have a Double Taxation Agreement.

CHILE

Economic data (2001)

|GDP: US$ 70 Billion |GDP per capita:US$ 4,938 |

|Canadian Direct Investment in Chile $US 11.932 billion |GDP Growth: 2.9% |

|Inflation Rate: 2.8% |Unemployment Rate:8.0% |

Canadian Trade Statistics with Chile (C$ Million)

|Source: |1992 |

|Statistics Canada | |

|1. Machinery 51.42 (65.43) |1. Ores (copper) 222.74 (209.72) |

|2. Cereals 45.70 (58.47) |2. Fruit 158.24 (145.36) |

|3. Elec. Machinery 40.91 (74.70) |3. Wine 57.97 (66.51) |

|4. Paper 39.19 (44.73) |4. Copper articles 45.28 (6.34) |

|5. Coal 31.73 (35.20) |5. Wood 33.32 (28.69) |

|In brackets: figures for 2000 |

|*(Exhibit 10) |

Canada-Chile Relations

Political

Canada-Chile relations have been steadily growing since Chile's return to democracy in 1990, and today they are excellent. A series of high-level political visits both ways, expanding multilateral cooperation, and Canada's important presence in the dynamic Chilean economy have made Chile one of Canada's key partners in Latin America. As evidence of the deepening bilateral relationship, the last few years have been witness to many high-level Canadian visits to Chile.

Commercial

Total two-way trade has increased dramatically, nearly doubling from $357 million in 1992 to $776 million in 1999. It verged on the billion-dollar mark in 2000 and 2001. In 2001, Canadian exports totaled $358.58 million, while imports from Chile amounted to $640.60 million. Canada is now the second largest foreign investor in Chile. The cumulative total of actual Canadian foreign investment is estimated at $5.63 billion in 2001.

The Canada-Chile Free Trade Agreement, which was signed in November 1996 and came into effect in July 1997, provided for immediate elimination of the 11% Chilean duty on the vast majority of Canadian industrial and resource-based exports, representing 80% of Canada's exports to Chile. Tariffs on the remainder of these goods were reduced immediately to 5.5% and will be completely phased out by 2003. Side agreements on environment and labor enhance cooperation in those areas.

Canada-Chile Trade and Investment Relations

Bilateral Trade

The Canada-Chile Free Trade Agreement (CCFTA), covers trade in goods and services and investment, and includes dispute settlement mechanisms. The CCFTA provided significantly improved access to the Chilean market for Canadian exporters.

A Double Taxation Agreement, effective January 1, 2000, has contributed to a more stable and fair taxation regime, easing the flow of commerce for individuals and business in both countries. With the primary objective of establishing a free trade area by progressively eliminating tariffs, Canada and Chile also signed an agreement to accelerate the elimination of tariffs under the CCFTA.

Total two-way trade between Canada and Chile has nearly doubled over the past decade, from $357 million in 1992 to $999 million in 2000. However, Canadian exports declined by 19% in 2001, to $358 million, after having risen by 27% to $441 million during the previous year.

The major sectors of opportunity for Canadian companies in the medium term include equipment and services in the following areas: mining and metals, energy, environment, information technology, and telecommunications, construction and building products, transportation and infrastructure, and plastics. Many Canadian companies consider Chile a gateway to neighboring markets.

Investment

International rating agencies such as Standard & Poor's have given Chile an "A minus" investment grade, the highest ever reached by a Latin American country. Canadian investment in Chile has increased sharply, making Canada Chile's second largest investor, after the United States, for approved investment. Canadian investments in Chile reached a cumulative total of over C$11 billion in 1999 (making Chile Canada's seventh largest foreign direct investment destination). Although primarily concentrated in the mining sector, there have been a number of important investments in energy, financial services, equipment manufacturing and communications.

The negative effects generated by the Asian crisis in emerging nations such as Chile did not dampen the confidence of foreign investors overall, and foreign capital continues to flow steadily into Chile. Moreover, Chile dealt with the economic downturn in 2001 with much less difficulty than its neighbors in the southern cone, due to sound macroeconomic policies and the fact that Chilean exports were (and remain) almost evenly divided between Asian, European and North American markets.

The CCFTA and the Canada-Chile Double Taxation Agreement significantly improve the legal regime applying to Canadian investors in Chile by providing them with benefits and guarantees unprecedented outside the NAFTA context. The CCFTA ensures that Canadian investors will be treated similarly to Chilean firms and will receive benefits equivalent to those Chile may grant to other countries in future agreements.

VENEZUELA

Economic Data (2001)

GDP: $129.2 billion

Real GDP Growth Rate: 2.7%

GDP per Capita: $5,115

Inflation Rate: 12.5%

Unemployment Rate: 14.6%

Total External Debt: $34.7 billion

Canadian Direct Foreign Investment: C $210M

|Trade with Canada |1997 |1998 |1999 |2000 |2001 |

|$C Millions | | | | | |

|Exports to Venezuela* |953.5 |704 |524 |636.4 |810.6 |

|Imports from Venezuela* |972.3 |841.4 |1014 |1412 |1353.2 |

|Two Way Trade |1926 |1545 |1538 |2048 |2,163.80 |

|Balance |-18.8 |-137 |-490 |-775 |-542.6 |

*(Exhibit 11)

Major Canadian Imports from Venezuela:

Petroleum (crude and non-crude); iron & steel (semi-finished); aluminum oxide; aluminum; motor vehicle parts; machinery.

Major Canadian Exports to Venezuela:

Motor vehicle parts; wheat; machinery; newsprint; wood pulp; vegetables; electrical machinery.

Canada-Venezuela Relations

Political

Relations between Canada and Venezuela have traditionally been sound and friendly. Canada-Venezuela relations are focused on commerce and trade issues. However, they have been expanding in other areas, which include institutional support, fight against narco-trafficking, education. Recent bilateral initiatives have included assistance in state reform, in particular the modernization of the judicial system and the promotion of human rights. Our programs include grassroots human rights initiatives through the Canada Fund for Local Initiatives.

Commercial

Venezuela, with a population of 24 million, continues to be an important commercial partner in South America. It is Canada's second largest trading partner in South America after Brazil. Petroleum products account for 94% of Canadian imports from Venezuela.

Canadian investments, totaling $210 million in 2001, are mostly concentrated in the telecommunications, energy, mining and banking sectors. In addition, Canadian exporters and investors are pursuing opportunities in the agri-food, environment and forestry sectors.

Canada-Venezuela Trade Relations

Trade

Venezuela is an important commercial partner for Canada in South America. It is Canada's second largest trading partner in South America and third largest in Latin America behind Mexico and Brazil. Bilateral trade in 2001 amounted to $2.14 billion. Preliminary figures indicate that exports in 2001 were $792 million, a 24.4 % increase over 2000, and imports were $1.352 billion, a 4.2 % decrease. Petroleum products account for 94% of Canadian imports from Venezuela.

The main Canadian exports to Venezuela include motor vehicle parts and accessories, telecommunications equipment, wheat, newsprint, wood pulp, potatoes, oilfield equipment, computers and components, beans and lentils, malt, motor vehicles and papers. Canada's imports from Venezuela consist of petroleum products, bitumen/asphalt, semi-finished iron for motor vehicle parts, iron and steel products, chemicals, rubber and plastics.

Agreements

The Foreign Investment Protection Agreement between Canada and Venezuela was signed in 1997 and came into force in January 1998. A double taxation agreement was signed in July 2001, and is expected to be ratified in 2002 so that it may come into force for the 2003 tax year. As a member of the Andean Community, Venezuela signed the Canada-Andean Community Trade and Investment Cooperation Agreement (TICA) in May 1999. The TICA establishes a framework for pursuing stronger commercial and economic cooperation and calls for periodic consultative group meetings.

COLOMBIA

Economic Data (2001)

GDP: $80.8 billion

GDP. Growth Rate: 1.5%

GDP per Capita: $2,021

Inflation Rate: 7.6%

Unemployment Rate: 16.7%

Total External Debt: $37.6 billion

Canadian Direct Foreign Investment: C$869 million

|Trade with Canada:(C$ millions) |1997 |1998 |1999 |2000 |2001 |

|Exports to Colombia* |473 |471.4 |254.8 |309.3 |361 |

|Imports from Colombia* |314 |364.2 |280.1 |332.2 |416 |

|Two Way Trade |787 |835.6 |534.9 |641.5 |777 |

|Balance |158 |107.2 |-25.3 |-22.9 |-55 |

*(Exhibit 12)

Major Canadian Imports from Colombia:

Coal; coffee; bananas; cut flowers; petroleum; yarn; sugar.

Major Canadian Exports to Colombia:

Cereals; vegetables; newsprint; copper; machinery; vehicle parts.

Canada-Colombia Relations

Political

Canada and Colombia have had unbroken bilateral relations since 1953. Canadian involvement has intensified in recent years through high-level visits, an evolving development assistance program, a growing source-country refugee program, security sector cooperation, cooperation in the area of landmines, connectivity initiatives, and a healthy trade relationship.

Over the next five years, Canada will be allocating approximately $60 million to Colombia through our development assistance programs. This represents the historical level of assistance (i.e. no increase). Objectives of Canadian development assistance in Colombia will include: (1) increasing Colombian capacity to meet the basic human needs and protect the human rights of people affected by the armed conflict; (2) supporting equitable participation in establishing the foundations for peace; and (3) improving Colombian capacity to address some of the key factors that cause and intensify violence.

Canada-Colombia Trade and Investment Relations

Trade

Colombia is Canada's fourth largest trading partner in South America after Brazil, Venezuela and Chile. Imports from Colombia in 2001 were $415.5 million, a 25% increase over 2001. Canada supplies approximately 3% of Colombia's imports. Two-way trade in 2001 surpassed $772 million, with Canadian exports to Colombia totaling $357 million, a 15% increase over the previous year.

Major Canadian exports are wheat, newsprint and paper, pulses, motor vehicles and parts, chemicals, telecommunications and electronic equipment, and processed foods and beverages. Significant export opportunities exist in sectors such as environment, telecommunications, oil and gas, mining, transportation, agriculture and processed foods. Coffee, bananas, coal, cut flowers, cane sugar and molasses, petroleum products, yarn and steel tubing for the oil and gas industry lead Canadian imports from Colombia.

Canadian companies enjoy an excellent reputation in Colombia, and the Canadian private sector has taken a leading role in opening the discussion within Colombia on issues relating to ethical business practices and corporate social responsibility. The Canada Colombia Chamber of Commerce (CCCC), with the full cooperation of the Canadian Embassy has organized much of this effort.

Investment

Canada has been a leading foreign investor in Colombia, primarily in the oil and telecommunications sectors, with current direct investment (planned and actual) totaling $4 billion. As a member of the Andean Community, Colombia signed the Canada-Andean Community Trade and Investment Cooperation Arrangement in May 1999.

Conclusion

From the data and analysis, it is quite clear that Canada and South America have good trade and political relations, albeit the volume and dollar amount of trade is not significant (Exhibits 5, 6, & 7). That is why, most statistical papers and reports clump Canadian data with that of the behemoth south of the border called the US. Canada has the potential to increase its trade with the rest of the Latin American countries; however, it will still be considered a satellite-trading partner with the US. Therefore, it is important for Canada to see where it can position itself, when the hemispheric trade zone does become a reality.

Looking at the Canadian involvement with the North American Free Trade Agreement (NAFTA) deal, it is clear on many levels that this particular lab experiment that had started, in essence, with the Auto Pact between Canada and the US, has been—on the whole—beneficial to Canada, although it has its staunch critics. At the moment, about 86% of our exports go to the US. The ambition is to replicate the model with more countries involved from the Americas, and therefore widen the circle.

Experts feel that Canada has to move very cautiously and strategically as it has done in the past—when it was negotiating the NAFTA deal with Mexico—so as not to lose ‘market share’ to other “Mexico wannabes”. Latin American countries have a lot to do in terms economic reforms, in order to be able to trade with the rest of North America a la Mexico (Exhibit 4). However, micro and macroeconomic reforms alone are not sufficient to make the cut. Political stability, judicial recourse, and a transparent democratic electorate process is paramount for trade, since MNCs would face the risk of expropriation and therefore would not be encouraged to commit capital or invest in infrastructure locally.

The United States is eager to go ahead with the ministerial meetings to hasten the process of economic integration. One reason for the eagerness on the part of the US is that the EU is quickly becoming the World’s largest economy, and therefore a direct competitor with the US. Another concern is that, the US economic growth has slowed down post the debacle, the stock market bubble, and information technology—while at the forefront of human advancement—has not been the economic catalyst that most observers expected. What it has done is make a lot of industries more efficient.

On January 31, 2003, the United States announced that the Free Trade Area of the Americas (FTAA) Ministerial Meeting would take place on November 20-21, 2003, in Miami, Florida. The negotiations among the 34 FTAA nations to remove tariffs, trade barriers, and promote regional economic integration and development throughout the Western Hemisphere are scheduled to be completed by January 2005, with Brazil and the United States co-chairing this final phase. With more than 800 million people throughout the Western Hemisphere, the FTAA will be the largest free-trade area in the world. It would be very interesting to see if the ambitious FTAA will be able to materialize by the set deadline.

References

Third Annual Report on Canada’s State of Trade, Trade Update May 2002

Department of Foreign Affairs and International

dfaiy-maeci.gc.ca/eet/state-of-trade-e.asp

The Financial Times



Statistics Canada

statscan.ca

STAT-USA

stat-

Griffin, Ricky W. and Pustay, Michael W., International business: A Managerial Perspective Second Edition, Addison Wesley, 1999

Department of Foreign Affairs and International Trade

dfait-maeci.gc.ca

Office of the United States Trade Representative



World Trade Organization



International Monetary Fund



World Bank



The Economist



Export Development Corporation

edc.ca

APPENDIX

Exhibit 1: Countries

Argentina*

Brazil*

Colombia*

Venezuela*

Chile*

Uruguay

Paraguay

Peru

Ecuador

Bolivia

Surinam

Guyana

French Guiana

* Major regional economies

Exhibit 2: Map of South America

Fourth largest continent on the planet

Population: 450 Million

Area: 6.9 Million sq. miles

Exhibit 3: South America Economic Indicators, 1995 - 2001

Exhibit 4: Percentage of exports for select South American countries (2001)

Exhibit 5: Merchandise Trade by Region

Exhibit 6: Merchandise Trade of Exports

Exhibit 7: Merchandise Trade of Imports

Exhibit 8: Argentina Trade Balance, 1995 - 2003

Exhibit 9: Brazil Trade Balance, 1995 - 2003

Exhibit 10: Chile Annual Trade Balance, 1995 - 2002

Exhibit 11: Venezuela Trade Balance, 1996 - 2002

Exhibit 12: Colombia Trade Balance, 1995 – 2002

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